REPORT 

OF 

JOINT  COMMITTEE  ON  VALUATION 

OF  OHIO  PUBLIC   UTILITIES 

UNDER  ORDER  No.  176  OF  THE 
PUBLIC  UTILITIES  COMMISSION 
OF  OHIO  ::  NINETEEN  FOURTEEN 


REPORT 


OF 


JOINT  COMMITTEE  ON  VALUATION 


OF 

OHIO  PUBLIC  UTILITIES 

UNDER 

ORDER  No.  176 

OF  THE 

PUBLIC  UTILITIES  COMMISSION 

OF  OHIO 

1914 


COPYRIGHT,  1914,  BY  JOINT  COMMITTEE  ON  VALUATION 
OF  OHIO  PUBLIC  UTILITIES 


TABLE  OF  CONTENTS 

Page 

Foreword     5 

Order  No.  176  and  Supplemental  Order 7 

Interpretation    of    the    Intent    and    Scope    of 

Order  No.  176 14 

Use  To  Be  Made  of  Inventories  and  Appraisals  15 

Property  Used  and  Useful 15 

Reproductive  Cost  New  of  a  Public  Utility 

Property  16 

Period  of  Theoretical  Reproduction  of  Property, 

Including  Plant  and  Business 17 

Outline  of  Inventory 18 

Preliminary  Costs   20 

1.  Preliminary  Investigation 20 

2.  Organization      20 

3.  Cost  of  Financing 21 

4.  Franchise     21 

Land     21 

1.  Original  Cost 21 

2.  Value  as  of  July  1,  1914 22 

3.  Additional  Value  by  Reason  of  Present 

Use      22 

Rights-of-way     23 

Water  Rights  23 

Buildings     24 

Working  Capital 25 

Unit  Costs 26 

Overhead  Costs   28 

1.  Legal 29 

2.  Administration  and  Supervision 29 

3.  Engineering     29 

4.  Insurance  during  Reproduction 30 

5.  Taxes  during  Reproduction 30 

6.  Interest  during  Reproduction 30 

7.  Contingencies    31 

8.  Omissions  and  Oversights 31 

322212 


CONTENTS— Continued. 

Page 

Apportionments     31 

Apportionment  of  Reproductive  Cost  of  Jointly 

Used  Poles 32 

Cost  of  Reproducing  the  Business 33 

Depreciation     34 

Consideration  of  Different  Methods  for  Deter- 
mining Depreciation   34 

Theoretical  Methods   34 

Straight  Line  Method 34 

Sinking  Fund  Method 35 

Objections    to    Straight    Line    and 

Sinking  Fund  Methods 35 

The  Actual  Inspection  Method 36 

Depreciation  Reserve   40 

Depreciation  of  Preliminary  and  Overhead  Costs  41 

Conclusion                   42 


FOREWORD 

For  some  years  it  has  been  the  custom  of  the 
members  of  each  class  of  utilities  in  the  state  to 
meet  together  in  conventions  for  the  purpose  of  dis- 
cussing questions  of  mutual  interest. 

In  the  conventions  which  followed  the  issuance  of 
Order  No.  176  of  The  Public  Utilities  Commission, 
these  associations  appointed  appraisal  committees 
to  supervise  the  preparation  of  appraisal  forms  for 
use  by  members  of  their  associations,  and  to  an- 
nounce principles  and  instructions  to  be  followed  in 
making  appraisals  of  their  properties  in  response  to 
the  Commission's  order. 

Since  many  of  the  questions  to  be  solved  are  com- 
mon to  all  the  utilities,  it  was  decided  at  a  meeting 
of  the  members  of  the  various  appraisal  committees, 
held  August  14,  1914,  that  economy  of  effort  and  ex- 
pense could  be  secured  by  the  appointment  of  a 
Joint  Committee  to  determine  upon  the  principles  to 
be  followed  in  arriving  at  correct  valuations  of  the 
various  utility  properties.  At  this  meeting  the  un- 
dersigned Committee  was  appointed. 

The  Committee  has  made  a  sincere  effort  to  for- 
mulate and  to  present  herein  the  principles  which  it 
believes  to  be  sound  and  practical  as  applied  to  the 
"reproductive  cost  new,  less  depreciation"  method  of 
valuing  public  utilities.  The  Committee  has  pro- 

[5] 


ceeded  on  the  assumption  that  this  is  the  method  of 
valuation  called  for  by  the  Commission  in  its  Order. 

Thanks  are  due  distinguished  members  of  the 
legal  profession,  expert  accountants,  engineers,  and 
men  of  experience  in  all  of  these  matters,  for 
their  attendance  at  the  numerous  meetings  and  their 
valuable  assistance  to  the  Joint  Committee. 

Respectfully  submitted, 

ROBT.  LINDSAY,  Chairman, 

Vice  President  &  General  Manager, 
The  Cleveland  Electric  Illuminating  Co. 

FRANK  C.  DUNBAR, 

District  Attorney, 

American  Telephone  &  Telegraph  Co. 

ALLARD  SMITH, 

General  Manager, 

The  Cleveland  Telephone  Co. 

ROLLO  R.  STEVENS, 

The  Ohio  State  Telephone  Co. 

J.  C.  MARTIN, 

President, 

Ohio  Water  Works  Association. 

F.  W.  COEN, 

Vice  President  &  General  Manager, 
The  Lake  Shore  Electric  Railway  Co. 

M.  B.  DALY, 

President, 

The  East  Ohio  Gas  Co. 


ANDREW  P.  MARTIN, 

Secretary  for  Committee. 


[6] 


ORDER  NO.  176  AND  SUPPLEMENTAL  ORDER, 

By  sections  499-8  to  499-14  of  the  General  Code 
of  Ohio  (Laws  1913,  pp.  808-812)  it  is  required  that 
the  Ohio  Public  Utilities  Commission,  "for  the  pur- 
pose of  ascertaining  the  reasonableness  and  justice 
of  rates  and  charges  for  the  service  rendered  by 
public  utilities  or  railroads  of  this  state,  or  for 
any  other  purpose  authorized  by  law,  shall  investi- 
gate and  ascertain  the  value  of  the  property  of  every 
public  utility  or  railroad  in  the  state,  used  and  use- 
ful for  the  service  and  convenience  of  the  public" 
and  "shall  prescribe  the  details  of  the  inventory  of 
the  property  of  each  public  utility  or  railroad  in  the 
state." 

Acting  under  the  authority  conferred  by  this 
statute,  the  Commission,  on  March  19,  1914,  issued 
its  Order  No.  176  requiring  inventories  and  apprais- 
als of  the  property  of  all  public  utilities  in  the  state, 
and  on  April  25,  1914,  issued  a  supplemental  order 
upon  the  same  subject.  Both  these  orders  are  print- 
ed below.  It  is  intended  that  the  term  "Order  No. 
176,"  as  used  throughout  this  report  shall  refer  to 
both  the  original  and  supplemental  orders. 

BEFORE 
THE  PUBLIC  UTILITIES  COMMISSION  OF  OHIO 


-No.  176 


In  the  matter  of  the  investigation 
ascertainment  by  the  commission  of  the 
value  of  the  property  of  public  utilities 
and  interurban  railroads  for  the  purpose 
of  ascertaining  the  reasonableness  and 
justice  of  the  rates  and  charges  for 
service  rendered  by  public  utilities  and 
interurban  railroads  and  for  other  pur- 
poses authorized  by  law. 

The  commission  having  under  consideration  the 
investigation  and  ascertainment  of  the  value  of  the 
property  of  public  utilities  and  of  interurban  rail- 
roads of  the  state  of  Ohio,  for  the  purpose  of  ascer- 
taining the  reasonableness  and  justice  of  the  rates 

[7] 


and  charges  for  service  rendered  by  such  public 
utilities  and  interurban  railroads,  and  for  other  pur- 
poses authorized  by  law,  and  it  appearing  that  the 
value  of  the  property  of  such  public  utilities  and 
interurban  railroads  should  be  investigated  and  as- 
certained, and  that  rules  and  regulations  prescrib- 
ing the  details  of  the  inventory  of  the  property  of 
each  such  public  utility  and  interurban  railroad  are 
necessary,  and  it  appearing  further  that  public  util- 
ities and  interurban  railroads  are  required  by  law 
to  co-operate  with  and  aid  the  commission  in  inves- 
tigating and  ascertaining  the  value  of  the  property 
of  such  public  utilities  and  interurban  railroads.  It 
is  therefore, 

ORDERED,  That  all  public  utilities  and  inter- 
urban railroads  operating,  doing  business  or  holding 
property,  except  messenger  and  signalling  com- 
panies, in  the  state  of  Ohio  be  and  they  each  and 
all  are  hereby  notified,  directed  and  required  to  pro- 
vide and  furnish  to  the  commission  lists  and  in- 
ventories of  all  the  kinds  and  classes  of  property 
with  the  value  of  each  kind  and  class,  owned,  operat- 
ed or  leased  by  each  such  public  utility  and  inter- 
urban railroad.  It  is  further, 

ORDERED,  That  the  lists,  inventories  and  val- 
uations herein  required  to  be  provided  and  furnished 
shall  be  in  the  form  and  detail,  following : 

SECTION  A.  Land,  used  and  useful  by  said 
utility  or  interurban  railroad. 

1.  Original  cost,  if  any.    (State  date  of  acquis- 
ition; if  unable  to  state  original  cost,  give  reason 
therefor.) 

2.  Conditions  of  said  acquisition,  (whether  by 
direct  purchase,  by  donation,  by  exercise  of  power 
of  eminent  domain  or  otherwise.) 

3.  Value  as  of  July  1,  1914,  of  each  parcel  of 
land,  (give  comparisons  with  the  value  of  neighbor- 
ing and  contiguous  parcels  of  land  or  of  land  of  sim- 
ilar character  as  to  location  and  use  so  far  as  pos- 

[8] 


sible  and  authority  for  whatever  comparisons 
given.) 

4.  Additional  value,  if  any,  for  each  parcel  of 
land  by  reason  of  its  present  use  and  basis  for  such 
claim. 

(N.  B.  By  parcel  is  meant  original  or  parts  of 
original  lots  as  shown  in  public  surveys.) 

SECTION  B.  Physical  property,  used  or  useful 
by  said  utility  or  interurban  railroad. 

1.  Complete  list  of  items  going  to  make  up  the 
physical  property.     (Said  lists  shall  give  ample  de- 
scriptions, maker's  name  and  identification  data  shall 
be  so  classified  as  to  group  the  items  in  any  proper 
distribution  and  shall  show  the  location  of  all  fixed 
property ;  provided,  however,  that  the  physical  prop- 
erty of  telephone  companies  shall  be  grouped  with 
reference  to  each  Exchange;  of  electric  light  and 
power  companies  with  reference  to  each  power  gen- 
erating plant,  as  to  transmission  lines,  but  distri- 
bution lines  and  all  appurtenances  connected  there- 
with shall  be  separately  grouped,  either  in  bulk  as  to 
whole  system  or  in  any  geographical  division  of  the 
territory  occupied,  that  may  be  desired.) 

2.  Cost  of  new  reproduction  as  of  July  1,  1914, 
of  each  item  shown  in  the  list  as  shown  in  paragraph 
No.  1  of  this  division,  together  with  the  unit  cost 
where  more  than  one  item  of  a  kind  is  included  in 
said  list. 

3.  Depreciation,  if  any,  from  said  new  reproduc- 
tive cost,  as  provided  for  in  paragraph  No.  2  of  this 
section,  as  of  July  1, 1914,  showing  said  depreciation 
as  follows : 

(a)  For  mechanical  deterioration; 

(b)  For  obsolescence; 

(c)  For  lack  of  utility ; 

(d)  For  any  other  cause ; 

and  for  each  [a]  percentage,  together  with  the  total 
percentage  for  all  causes,  and  also  the  total  amount 
of  depreciation  in  terms  of  dollars. 

[9] 


4.  Net  value,  (being  the  difference  between  the 
cost  of  new  reproduction  as  shown  and  the  total  of 
all  classes  of  depreciation  as  shown.) 

SECTION  C.  Any  value  claimed  for  any  of  the 
following  reasons: 

(a)  Overhead  expenses  during  time  of  theoret- 
ical reconstruction,  (stating  what  expenses  are  in- 
cluded in  the  estimate  with  the  percentage  for  each 
or  a  total  percentage  for  all  set  forth.) 

(b)  Any  value  claimed  for  the  possession  of  a 
contract  to  perform  the  public  service  together  with 
the  basis  for  said  claim. 

(c)  Any  value   claimed   for   "good   will,"   for 
"going  value,"  for  "financing"   or  for  any   other 
reason,  together  with  basis  for  said  claim. 

SECTION  D.  Complete  list  of  all  property  of 
whatever  kind  owned  but  not  used  or  useful. 

SECTION  E.  The  summary  of  the  inventory 
shall  be  in  the  form  that  shall  show  the  titles  of  the 
various  classifications  and  the  totals  for  each  class- 
ification; showing  also  the  total  for  reproductive 
cost,  for  each  class  of  depreciation,  and  total  net 
present  value.  It  is  further, 

ORDERED,  That  the  lists,  inventories  and  val- 
uations herein  required  shall  be  filed  in  duplicate  at 
the  office  of  the  commission  at  Columbus,  Ohio,  on 
or  before  the  1st  day  of  August,  1914.  It  is  further, 

ORDERED,  That  all  lists  and  inventories  and 
valuations  herein  required  of  leased  property  shall 
be  filed  with  the  commission  in  the  name  of  the 
lessor.  It  is  further, 

ORDERED,  That  where  any  public  utility  or 
interurban  railroad  herein  required  to  provide  and 
furnish  lists,  inventories  and  valuations,  has  prop- 
erty in  more  than  one  county  of  the  State  of  Ohio, 
the  value  of  its  property  in  each  of  such  counties 
shall  be  shown.  It  is  further, 

[10] 


ORDERED,  That  no  extension  of  the  time 
herein  limited  for  the  filing  of  such  lists,  inventories 
and  valuations  shall  be  taken  or  granted  except  upon 
written  application  to  the  commission,  which  applica- 
tion shall  clearly  set  out  the  reasons  for  such  exten- 
sion. 

THE  PUBLIC  UTILITIES  COMMISSION  OF  OHIO, 

0.  H.  HUGHES,  Chairman, 
C.  C.  MARSHALL, 
E.  W.  DOTY, 

Commissioners. 

Dated  at  Columbus,  Ohio,  this  19th  day  of  March, 
1914. 

A  true  copy: 

C.  A.  RADCLIFFE, 

Secretary. 

BEFORE    THE    PUBLIC    UTILITIES 
COMMISSION    OF    OHIO 

In  the  matter  of  the  investigation  and 
ascertainment  by  the  Commission  of  the 
value  of  the  property  of  public  utilities 
and  interurban  railroads  for  the  purpose 
of  ascertaining  the  reasonableness  andJ-No.  176 
justice  of  the  rates  and  charges  for 
service  rendered  by  public  utilities  and 
interurban  railroads  and  for  other  pur- 
poses authorized  by  law. 

The  Public  Utilities  Commission  of  Ohio,  desir- 
ing to  make  plain  all  of  the  provisions  of  Order 
No.  176,  recently  issued  and  calling  for  an  appraisal 
of  the  property  of  public  utilities  of  the  state,  issues 
the  following: 

1.  It  will  be  observed  in  the  last  paragraph  of 
the  Order  that  wherever  time  beyond  August  1st, 
1914,  is  desired  for  filing  inventories  with  this  com- 
mission, application  for  such  change  together  with 
the  reasons  therefor  must  be  made.  The  date  set 
forth  in  the  Order,  August  1st,  1914,  is  purely  tenta- 

[11] 


tive.  It  was  manifestly  impossible  to  select  a  date 
that  would  fit  all  companies.  It  is  the  plan  of  the 
commission  to  grant  all  requests  for  reasonable  ex- 
tensions of  time,  provided  adequate  reasons  there- 
for are  given  in  writing  and  also  stating  definitely 
the  extension  desired. 

2.  The  commission  does  not  want  to  be  under- 
stood as  in  any  way  compelling  any  unnecessary  ex- 
pense in  carrying  out  Order  No.  176  on  the  part  of 
any  utility  in  the  state.    Ample  time  will  be  given  to 
any  utility  that  desires  to  use  its  own  clerical  force 
to  do  the  work.    It  is  not  necessary  to  employ  out- 
side engineers  or  companies  to  make  this  appraisal 
unless  desired  by  the  utility  itself. 

3.  The  commission  has  not,  and  will  not,  pres- 
cribe blanks  for  the  appraisal  of  any  utility. 

The  Order  sets  forth  by  schedules  the  informa- 
tion desired  and  the  order  in  which  it  is  to  be  re- 
turned. The  commission  desires  this  information  in 
typewritten  form,  and  on  sheets  measuring  8V2  by 
13  inches  or  very  close  to  that  size. 

4.  The  commission  desires  to  emphasize    that 
part   of   the   Order   requiring   the   filing   of   these 
schedules  and  inventories  in  DUPLICATE.  This  pro- 
vision must  not  be  overlooked. 

5.  All  inventories  must  carry  the  legal  title  of 
the  company  for  which  the  inventory  is  made  and 
must  be  signed  in  ink  by  the  proper  officer  or  of- 
ficers. 

6.  The  commission  advises  that  each  item  called 
for  in  the  schedule  be  inserted  in  the  appraisal.    If 
there  is  no  property  or  value  for  the  item  called  for, 
the  fact  should  be  so  stated. 

7.  Order  No.  176  does  not  call  for  maps  and 
charts.    The  commission    suggests    that    wherever 
utilities  have  tracings  from  which  authentic  maps  or 
charts  may  be  made,  that  they  be  filed  with  the  ap- 
praisal.   If  this  is  done,  these  maps  must  be  folded 
so  that  they  will  have  as  few  folds  as  possible  to 

[12] 


produce  a  sheet  8y%  by  13  inches, — in  other  words, 
so  that  the  maps  and  appraisal  sheets  will  be  of  the 
same  size  when  the  maps  are  folded.  If  maps  or 
charts  are  furnished,  they  should  carry  the  name  of 
the  company,  the  scale  to  which  the  map  or  chart  is 
drawn,  the  date  of  the  appraisal,  and  any  proper  di- 
rections so  that  the  various  lines  may  be  under- 
stood. 

8.  The  commission  desires  to  be  as  helpful  as 
possible  to  the  utilities  needing  assistance  or  advice. 
If  after  a  careful  reading  of  the  Order  or  this  cir- 
cular there  is  anything  not  understood,  do  not  hesi- 
tate to  make  inquiry. 

THE  PUBLIC  UTILITIES  COMMISSION  OF  OHIO, 

0.  H.  HUGHES,  Chairman, 
C.  C.  MARSHALL, 
E.  W.  DOTY, 

Commissioners. 

Dated  at  Columbus,  Ohio,  this  25th  day  of  April, 

1914. 

C.  A.  RADCLIFFE, 

Secretary. 


[13] 


INTERPRETATION     OF     THE     INTENT     AND 
SCOPE  OF  ORDER  NO.  176. 

Although  the  terms  "inventory,"  "appraisal"  and 
"valuation"  are  used  interchangeably  throughout  Or- 
der No.  176,  the  evident  purpose  of  the  order  is  to 
secure  not  only  a  complete  inventory  of  the  items  of 
property  of  each  utility,  but  also  a  valuation  or  ap- 
praisal of  this  property.  It  is  therefore  of  the  ut- 
most importance  that  the  inventories  and  appraisals 
filed  under  this  order  should  be  as  accurate  as  pos- 
sible, both  in  the  list  of  the  elements  of  property  of 
the  utility,  and  the  costs  assigned  to  these  elements. 
It  is  important  to  remember  that  the  property  of  a 
utility  comprises  both  its  plant,  using  this  word  in 
its  largest  sense,  and  its  business,  and  that  both 
must  be  included  in  the  inventory  and  appraisal. 

The  classification  set  forth  in  Sections  B  and  C 
of  Order  No.  176  and  the  subdivisions  thereof  may 
prove  misleading  to  one  who  does  not  consider  the 
matter  carefully.  The  expression  "net  value"  in 
Section  B  (4)  must  not  be  taken  to  mean  the  total 
value  of  all  the  property  of  the  utility.  Section  B 
provides  only  for  the  valuation  of  physical  property, 
aside  from  the  overhead  costs,  and  the  expression 
"net  value"  refers  simply  to  the  depreciated  value  of 
the  physical  property  without  regard  to  overheads 
or  to  the  business  of  the  utility.  This  classifi- 
cation may  have  been  made  because  of  the  fact 
that,  generally  speaking,  the  overhead  costs,  such 
as  engineering,  interest  during  reproduction,  etc.,  do 
not  depreciate  with  the  physical  property.  Hence, 
the  overhead  costs  are  separately  provided  for  in 
Section  C. 

To  the  cost  of  the  physical  property  and  the  over- 
heads must  be  added  the  cost  of  establishing 
the  business  and  any  other  elements  which  enter 
into  the  total  value  of  the  property  of  the  utility. 

[14] 


USE    TO    BE    MADE    OF    INVENTORIES 
AND    APPRAISALS. 

The  use  which  will  be  made  of  the  inventories 
and  appraisals  filed  with  the  Commission  has  not 
been  announced.  The  Commission  has  the  right  in 
the  case  of  any  particular  company  to  proceed  at 
once  to  make  a  final  valuation  in  accordance  with 
the  provisions  of  Section  499-12  of  the  General  Code, 
or  it  may  simply  retain  any  inventory  and  appraisal 
for  such  future  use  as  may  be  desired.  If  the  Com- 
mission should  in  any  instance  decide  to  make  a  final 
valuation  at  once,  such  valuation  would  under  the 
law  thereafter  constitute  "prima  facie  evidence  rela- 
tive to  the  value  of  the  property"  as  of  the  date  upon 
which  the  valuation  was  made.  Even  in  the  absence 
of  a  valuation  by  the  Commission,  it  is  possible  that 
an  effort  might  be  made  to  use  the  inventory  and 
appraisal  as  evidence  against  the  utility  in  any  pro- 
ceeding relating  to  the  fixing  of  rates,  capitalization, 
sale,  condemnation,  taxation,  or  any  other  proceed- 
ing which  might  take  place  in  the  future. 

PROPERTY  USED  AND  USEFUL. 

All  property,  whether  used  and  useful,  or  not 
used  and  useful,  is  to  be  included  in  the  inventory 
and  valuation,  and  is  to  be  appraised  upon  the  basis 
of  its  reproductive  cost  as  of  a  date  certain. 

"Used  and  useful"  property  embraces  the  follow- 
ing: 

1.  Property  regularly  in  service  in  the  course 
of  the  utility's  operation. 

2.  Property  not  regularly  in  service,  but  which, 
owing  to  the  wide  range  in  the  demand  at  different 
times  of  the  year,  is  used  only  at  rare  intervals,  but 
is  actually  needed  and  used  at  some  time. 

3.  That  class  of  property  which  of  necessity 
may  seldom  if  ever  be  used,  but  which  prudence  and 
good  management  deem  essential  as  a  part  of  the  re- 

[15] 


serve  capacity  of  the  plant  and  as  a  safety  measure 
to  guarantee  constant  service. 

4.  That  class  of  property  which  good  manage- 
ment and  business  judgment  deem  it  necessary  to  ac- 
quire in  advance  of  immediate  needs,  because  of  the 
greater  economy  of  present  acquirement  as  com- 
pared with  acquisition  when  demands  of  the  public 
and  of  the  service  become  urgent,  or  for  other  rea- 
sons which  suggest  themselves  for  the  ultimate  good 
of  the  service.    This  is  also  a  margin  of  safety  and 
inures  to  the  ultimate  benefit  and  economy  of  the 
service. 

5.  All  other  property  and  property  rights  de- 
voted to  the  public  use. 

The  classification  of  the  company's  property  be- 
tween that  "used  and  useful"  and  that  "not  used 
and  useful"  must  be  based  on  the  operating  records 
and  the  judgment  of  the  management. 

Overhead  costs  should  be  applied  to  all 
classes  of  property  according  to  their  nature,  with- 
out regard  to  whether  such  property  is  used  and  use- 
ful, or  not. 

REPRODUCTIVE  COST  NEW  OF  A  PUBLIC 
UTILITY  PROPERTY. 

The  cost  of  reproducing  the  property  of  a  utility 
is  made  up  of: 

1.  The  cost  of  reproducing  the  plant. 

2.  The  cost  of  reproducing  the  business  which 
was  attached  at  the  time  of  the  investigation. 

The  reproductive  cost  new  of  such  property 
(both  plant  and  business)  means  the  cost  of  repro- 
ducing the  property  as  constituted  at  the  time  of 
the  investigation.  The  cost  of  reproducing  the  prop- 
erty as  of  the  date  certain  should  take  into  account 
all  physical,  municipal,  industrial,  and  other  condi- 
tions existing  at  that  time,  which  affect  the  cost  of 

[16] 


labor,  materials,  engineering,  administration,  financ- 
ing and  securing  of  business,  together  with  all  other 
items  which  enter  into  the  reproductive  cost  new  of 
the  plant  and  business  as  an  entirety.  Where  two  or 
more  utilities  are  operated  by  a  single  company,  each 
utility  must  be  valued  separately,  and  the  value  of 
any  property  which  is  used  in  common  by  some  or 
all  of  the  utilities  must  be  apportioned  among  them 
in  the  proportion  in  which  such  common  property  is 
used  by  each  utility. 

The  types  of  units  actually  in  use  should  be 
taken,  and  no  theoretical  substitution  should  be  made 
of  units  of  a  different  type  which  might  be  capable 
of  rendering  equal  service. 

The  material  prices  and  labor  costs  to  be  used 
should  be  those  on  which  it  would  be  fair  and 
reasonable  to  figure  in  reproducing  the  property  of 
the  utility,  making  due  allowance  for  market  fluctua- 
tions and  any  abnormal  conditions.  In  the  case  of 
abnormal  conditions  affecting  market  prices,  fair 
prices  may  be  determined  by  means  of  a  trend  curve 
going  back  far  enough  so  that  the  trend  price  would 
not  be  materially  affected  by  going  back  further. 
The  period  for  which  the  trend  curve  is  plotted  has 
no  relation  to  the  length  of  time  that  would  be  re- 
quired to  reproduce  the  property. 

PERIOD    OF    THEORETICAL    REPRODUCTION 

OF   PROPERTY,   INCLUDING   PLANT 

AND    BUSINESS. 

In  view  of  the  fact  that  the  reproduction  of  a 
plant  and  its  business  as  it  exists  upon  the  date  of 
the  inventory  and  appraisal  will  extend  over  a  con- 
siderable period  of  time,  and  that  construction  work 
will  continue  to  the  end  of  the  period,  it  is  obvious 
that  the  owner  must  bear  the  cost  of  interest  on 
money  expended  for  reproduction  of  both  plant  and 
business  from  the  time  it  is  raised  until  such  repro- 

[17] 


duction  is  complete,  and  also  the  cost  of  insurance 
and  taxes  over  the  same  period.  In  order  to  arrive 
at  the  proper  amount  of  interest,  insurance  and  taxes 
to  be  added  to  the  other  reproductive  costs,  it  is  nec- 
essary to  estimate  the  reasonable  period  which  such 
reproduction  of  the  plant  and  business  will  require. 
This  period  will  be  different  for  different  utilities  and 
properties  of  different  size,  and  the  Committee  can- 
not undertake  to  estimate  it  for  all. 

Due  to  lack  of  appreciation  of  the  many 
elements  to  be  considered  in  making  this  es- 
timate there  is  a  general  tendency  to  assume 
a  much  shorter  period  than  is  in  fact  required. 
The  period  should  begin  when  the  proposition 
is  first  conceived  and  follow  through  all  the  suc- 
cessive steps  to  completion  along  such  lines  as  obtain 
today.  The  date  certain  to  be  taken  for  the  comple- 
tion of  the  plant  and  business  should  be  July  1,  1914, 
as  of  which  the  inventory  and  appraisal  are  made, 
and  the  period  of  theoretical  reproduction  should  be 
such  period  prior  thereto  as  would  reasonably  be  re- 
quired to  complete  the  plant  and  business  upon  said 
date.  It  is  the  opinion  of  the  Committee  that  al- 
though during  the  earlier  part  of  such  period  the 
principal  expenditures  will  be  on  account  of  con- 
struction, expenditures  on  account  of  establishing 
business  will  begin  at  some  time  during  the  period 
and  proceed  simultaneously  with  construction  ex- 
penditures to  the  end. 

OUTLINE   OF  INVENTORY. 

In  order  to  comply  with  Order  No.  176  of  the 
Utilities  Commission,  it  is  necessary  that  the  in- 
ventory should  show  the  following: 

I.     Reproduction  cost  new  of : 
A.     Preliminary  Work. 

1.     Preliminary    Investigation.      See    page 
20. 

[18] 


2.  Organization    of    Company.     See    page 

20. 

3.  Cost  of  Financing.   See  page  21. 

4.  Franchise.    See  page  21. 

B.  Physical  Plant,  consisting  of 

1.  Land.   See  page  21. 

2.  Rights-of-way   and   water   rights.    See 

page  23. 

3.  Buildings.   See  page  24. 

4.  Generating    or    Pumping    Plant,     Ex- 
change Equipment,  etc. 

5.  Distribution  and  transmission  systems, 
track,  etc. 

6.  Tools,  teams,  vehicles,  etc. 

7.  Furniture  and  fixtures. 

8.  Working  capital.    See  page  25. 

(a)  Cash  and  other  quick  assets. 

(b)  Stores  and  supplies. 

9.  Other  items  of  physical  property. 

For  unit  costs  as  applied  to  the  above,  see 
page  26. 

For  overhead  costs  as  applied  to  the  above,  see 
page  28. 

C.  Established  Business. 

1.  Cost  of  organizing  and  training  operat- 
ing, selling  and  clerical  forces. 

2.  Cost  of  selling  service. 

3.  Any  other  costs  of  attaching  business. 

For  direct  costs  as  applied  to  the  above,  see 
page  33. 

For  overhead  costs  as  applied  to  the  above,  see 
page  28. 

II.  Any  Other  Elements  of  Going  Value  or  Good 

Will. 

III.  All  Other  Elements  of  Value. 

[19] 


PRELIMINARY  COSTS. 

There  are  necessarily  certain  costs  and  expenses 
which  precede  the  work  of  actual  construction  of  the 
plant  or  development  of  the  business  of  a  utility. 
Such  costs  cannot  be  avoided  and  must  be  borne 
ultimately  by  the  company  which  becomes  the  owner 
of  the  property.  In  order  to  appreciate  duly  the 
number  and  extent  of  these  costs,  the  person  ap- 
praising the  property  should  begin  with  the  very  in- 
ception of  the  idea,  and  as  far  as  possible  estimate 
all  the  necessary  costs  up  to  the  time  of  the  actual 
work  of  construction  of  the  plant. 

Some  of  these  necessary  preliminary  costs  are  the 
following : 

1.  Preliminary   Investigation. 

This  should  include  all  costs  from  the  conception 
of  the  idea  to  the  time  of  organization  of  the  com- 
pany, such  as  investigations  as  to  the  feasibility  of 
the  project,  and  similar  preliminary  expenses;  not 
including,  however,  promoters'  compensation,  which 
is  classified  under  "Organization." 

2.  Organization. 

This  should  include  all  fees  paid  to  the  state 
for  the  privilege  of  incorporation  and  all  fees  and 
other  expenditures  incident  to  organizing  the  utility. 
It  should  include  the  cost  of  preparing  and  distribut- 
ing prospectuses,  cash  fees  paid  to  promoters,  and 
the  actual  cash  value  at  the  time  of  organization  of 
securities  paid  to  promoters  for  their  services  in  or- 
ganizing the  enterprise,  cost  of  preparing  and  issu- 
ing certificates  of  stock,  bonds  or  other  securities. 

It  should  also  include  legal  services  required  in 
connection  with  the  drafting  of  articles  of  incorpora- 
tion, by-laws,  corporate  records  of  proceedings  of  di- 
rectors and  stockholders  necessary  to  complete  the 
corporate  organization  of  the  company,  certificates 
to  the  secretary  of  state,  preparing  of  stock  certifi- 
cates, bond  mortgage,  and  all  other  documents  con- 

[20] 


nected  with  the  issuance  of  securities,  preparing  ap- 
plication and  securing  consent  of  Public  Utilities 
Commission  to  the  issuance  of  securities,  expenses 
incident  to  an  increase  of  the  capital  stock,  and  ex- 
penses of  preparing  and  filing  certificates  of  amend- 
ment to  the  articles  of  incorporation.  This  should 
not  include  any  discounts  upon  bonds  issued,  nor 
any  costs  incident  to  negotiating  loans  or  selling 
bonds  or  other  evidences  of  indebtedness. 

3.  Cost   of   Financing. 

This  should  include  brokers'  fees,  bankers'  com- 
missions, underwriting  expenses,  cost  of  soliciting 
subscriptions  for  stock,  and  all  other  costs  in  con- 
nection with  raising  funds. 

4.  Franchise. 

This  should  include  only  the  amount  actually  paid 
to  any  municipality  or  other  political  subdivision  of 
state  or  county  for  the  grant  of  the  franchise. 

LAND. 

To  conform  to  the  requirements  of  Order  No.  176, 
that  part  of  the  inventory  and  appraisal  which 
treats  of  the  land  owned  by  the  utility  should  set 
forth  the  following  data: 

I.     Original  Cost. 

1.  The  original  cost,  including  purchase  price,  or 
award  and  expenses  of  condemnation  proceedings; 
broker's  fee;  the  cost  of  surveying  and  expenses  in 
connection  with  choice  of  the  site;  attorneys'  fees, 
and  expenses  due  to  any  law  suit  in  connection  with 
the  establishment  of  lines ;  abstract  company's  fees ; 
recorder's  fees  and  expense  of  registering  title ;  taxes 
and  assessments  accrued  to  date  of  transfer  of  title, 
and  all  other  liens  upon  the  title,  when  assumed  by 
the  purchaser;  payments  for  damages  to  abut- 
ting property;  and  cost  of  grading  land  when  not 
done  in  connection  with  buildings. 

[21] 


2.  Date  and  conditions  of  acquisition,  whether 
by  direct  purchase,  exercise  of  power  of  eminent 
domain,  or  otherwise. 

II.  Value  as  of  July  1st,  1914. 

The  value  as  of  July  1st,  1914,  of  each  parcel  of 
land.  (Give  comparisons  with  value  of  neighboring 
and  contiguous  parcels  of  land  of  similar  character 
as  to  location  and  use,  so  far  as  possible,  and  au- 
thority for  whatever  comparisons  given.) 

In  determining  the  value  of  the  land  to  the  util- 
ity, the  Committee  is  of  the  opinion  that  it  is  proper 
to  consider  all  expenses  necessary  in  acquiring  the 
land,  including  purchase  price  or  award  and 
expenses  of  condemnation  proceedings ;  broker's  fee ; 
the  cost  of  surveying  and  expenses  in  connection 
with  choice  of  the  site ;  attorneys'  fees,  and  expenses 
due  to  any  law  suit  in  connection  with  the  establish- 
ment of  lines;  abstract  company's  fees;  recorder's 
fees  and  expenses  of  registering  title;  taxes  and  as- 
sessments accrued  to  date  of  transfer  of  title,  and 
all  other  liens  upon  the  title,  when  assumed  by  the 
purchaser;  payments  for  damages  to  abutting 
property ;  and  cost  of  grading  land  when  not  done  in 
connection  with  buildings. 

III.  Additional  Value  by  Reason  of  Present  Use. 

If  any  parcel  of  land  used  by  the  utility  is  by  its 
location  or  character  especially  well  fitted  to  such 
use,  the  utility  in  fixing  the  value  of  said  parcel 
should  set  up  under  this  heading  the  additional 
value  arising  from  such  special  or  peculiar  adapt- 
ability. Thus,  for  example,  in  considering  the 
adaptability  of  a  parcel  of  land  for  use  as  a  site  for 
a  central  station,  due  regard  should  be  given  to  the 
following  special  features  which  might  affect  its 
value : 

1.  Location  with  reference  to  center  of  distri- 
bution. 

[22] 


2.  Location    with    reference   to   transportation 
facilities. 

3.  Suitability  of  property  for  future  growth. 

4.  Any  other  natural  advantage,  such  as  avail- 
ability of  supply  of  condensing  water,  etc. 

RIGHTS-OF-WAY. 

This  should  include  the  cost  of  reproducing  all 
rights-of-way  acquired  for  the  location  of  poles, 
wires,  cables,  conduits,  pipe  and  track,  whether  such 
rights-of-way  consist  of  land  owned  in  fee  or  of  ease- 
ments acquired  by  permanent  grants  or  through  re- 
vocable licenses,  oral  or  written;  including  the  pur- 
chase price  or  award  and  expenses  of  condemnation 
proceedings,  the  cost  of  obtaining  consents,  the  sal- 
aries and  expenses  of  right-of-way  agents  and  others 
employed  in  securing  such  grants,  recorder's  fees 
and  all  other  expenses  incurred  in  the  acquisition  of 
such  rights. 

A  discussion  of  these  expenses  is  more  fully  set 
forth  under  Land,  page  21. 

WATER  RIGHTS. 

This  should  include  the  cost  of  reproducing  all 
water  rights,  whether  acquired  through  purchases 
of  the  fee,  or  through  permanent  grants  or  revocable 
licenses,  oral  or  written;  including  the  purchase 
price,  or  award  and  expenses  of  condemnation  pro- 
ceedings, the  salaries  and  expenses  of  persons  en- 
gaged in  securing  such  grants,  recorder's  fees  and  all 
other  expenses  incurred  in  the  acquisition  of  such 
rights. 

A  discussion  of  these  expenses  is  more  fully  set 
forth  under  Land,  page  21. 

[23] 


BUILDINGS. 

The  cost  of  reproduction  of  each  building  owned 
by  the  utility  should  include : 

1.  Such  preliminary  costs  as  the  owner  must  in- 
cur for  engineering  and  architectural  expenses  per- 
taining directly  to  the  building  in  question. 

2.  The  contractor's  charge  for  reproducing  the 
building. 

This  should  be  based  on  one  or  more  competent 
contractors'  estimates,  taking  into  account  the  entire 
building  and  all  permanent  fixtures,  such  as  water, 
steam  and  gas  piping  and  fixtures;  electric  wiring 
and  fixtures  for  lighting,  signalling,  etc.;  elevators; 
furnaces,  boilers,  and  other  apparatus  for  heating; 
and  permanent  foundations  for  machinery  and 
apparatus. 

The  contractor's  estimate  should  show  quantities 
and  unit  prices  and  should  take  into  account  proper 
and  sufficient  allowances  for  delays  due  to  strikes  or 
other  causes,  contractor's  profit,  and  his  costs  for 
money  to  meet  all  payments  during  the  course  of 
construction  and  until  all  payments  have  been  made 
by  the  owner  in  accordance  with  the  usual  plan  of 
payments. 

In  making  his  estimate  the  contractor  should  not 
omit  those  elements  of  cost  which  while  not  apparent 
in  the  finished  building  are  necessarily  incurred  in 
connection  with  its  construction.  The  following  list 
will  be  suggestive  of  the  type  of  items  referred  to : 

Demolition  of  old  Build-  Protection    and    Under- 
ings  pinning   of   Adjoining 

General  Excavations  Buildings 

Pits  and  Trenches  Cost  of  Estimate 

Pumping  and  Drains  Traveling,  if  any 

Sheet  Piling  and  Bracing  Fire  Insurance 

Protection  of  Street  and  Lability  Insurance 

Repairs  Bond 

[24] 


Fees  for  Building  Per-  Superintendence 

mits  Temporary  Office 

Water  and  Permits  Telephone 

Protection  of  Work  Photographs 

Stair  Guards  and  Lights  Sheds 

Rubbish  Roadway   and   Planking 

Foundation  Piles  Temporary  Toilets 

Tests  of  Steel,  Cement  Temporary  Heat 

and  other  Material  Fence 

Protection  of  Masonry  Temporary  Enclosures 

Cutting  and  Patching  Watchmen 

Waterproofing  Omissions    and    Contin- 

Survey  and  Levels  gencies. 

3.  Architects'  and  owners'  supervision,  extras, 
changes  and  unforseen  expenses  which  are  paid 
by  the  owner  and  which  are  not  included  in  the  con- 
tractor's estimate. 

In  this  should  be  included  the  cost  of  grading 
and  sidewalks,  fences,  hedges,  etc.,  on  grounds  used 
in  connection  with  the  building,  and  all  other  items 
not  specifically  included  in  the  contractor's  estimate. 

WORKING  CAPITAL. 

Working  Capital  may  be  defined  as  the  amount 
of  supplies,  cash,  and  other  quick  assets  necessary 
for  the  safe,  prudent  and  efficient  transaction  of  a 
utility's  business.  It  is  impossible  to  lay  down  any 
definite  rule  for  estimating  the  proper  amount  to  be 
allowed  for  this  item,  and  this  must  be  determined 
by  each  utility  with  regard  to  its  ordinary  outstand- 
ings,  both  payable  and  receivable,  its  methods  of  col- 
lections, the  natural  risk  of  the  business,  and  the  con- 
dition of  its  credit.  The  allowance  should  be  suf- 
ficient to  care  for  emergencies  and  contingencies  as 
well  as  the  ordinary  expenses  of  operation. 

[25] 


UNIT  COSTS. 

It  is  a  well-known  fact  that  the  plant  of  a  public 
utility  is  never  constructed  as  an  entirety,  or  with- 
in the  theoretical  period  of  construction  assumed 
by  the  reproductive  method  of  valuation.  On 
the  contrary,  a  considerable  portion  of  every  plant  is 
constructed  through  the  gradual  addition  of  exten- 
sions and  improvements  to  that  portion  of  the  plant 
which  was  originally  constructed.  This  experience 
is  ordinarily  called  Piece-Meal  Construction. 

Examples  of  such  construction  are  as  follows : 
In  the  case  of  a  telephone  plant,  extensions  of 
lines  and  installation  of  drops,  etc. ;  in  the  case  of  an 
electric  light  plant,  similar  extensions  of  lines  for  the 
installation  of  loops  and  transformers;  in  the  case 
of  an  electric  railway,  track  extensions,  connections 
and  switches,  built  from  time  to  time;  and  in  the 
case  of  water  and  gas  plants,  the  extension  of  mains 
and  the  installation  of  services. 

The  cost  of  construction  of  a  plant  by  the  usual 
method  is  of  necessity  greater  than  the  cost 
of  construction  of  a  plant  built  as  an  entirety 
within  the  theoretical  period  of  construction. 

It  is  therefore  obvious  that  in  the  valuation  of  a 
plant,  due  regard  must  be  given  this  usual  method  of 
construction  in  the  determination  of  unit  costs ;  and 
these  costs  will  vary  somewhat  in  accordance  with 
surrounding  circumstances  and  conditions.  Where 
practicable,  unit  costs  should  be  secured  from  actual 
day  to  day  performance  of  the  work,  and  where  such 
data  is  not  available,  estimated  unit  costs  should  be 
representative  of  day  to  day  performance  of  the 
work. 

The  following  are  the  elements  which  enter  into 
the  cost  of  any  unit: 

1.  Cost  of  unit  f.  o.  b.  point  of  supply. 

2.  Cost  of  purchasing. 

3.  Cost  of  inspection. 

[26] 


4.  Freight,  switching,  expressage  or  cartage  to 
point  of  delivery,  or  to  utility's  store-room  or  yard. 

5.  Cost  of  unloading. 

6.  Cost  of  any  work  at  point  of  delivery,  or  in 
shop,  store-room  or  yard,  in  preparing  unit  for  use. 

7.  Cost  of  hauling  to  point  of  use,  whenever  dif- 
ferent from  point  of  delivery. 

8.  Shop,  store-room  or  yard  charges. 

In  the  event  that  the  utility  owns  the  yard 
or  the  building  in  which  the  shop  or  store- 
room is  located,  then  the  shop,  store-room  or 
yard  expense  for  any  unit  should  include  a 
pro  rata  share  of  all  expenses  with  the  excep- 
tion of  interest,  taxes  and  insurance  on  such 
land  or  building,  which  items  are  a  part  of 
the  overhead  charges  on  land  and  buildings. 
But  where  the  utility  leases  its  shop,  store- 
room or  yard,  a  pro  rata  share  of  the  rental 
should  be  included. 

9.  Labor,  including  expenses  of  transportation, 
board  and  incidentals,  and  foreman's  time  and  ex- 
penses, in  performance  of  all  work  at  point  of  use, 
including  lost  time  and  delays  in  work. 

10.  Tools  and  Appliances. 

This  should  include  the  cost  and  mainten- 
ance of  any  construction  tools  and  appliances 
which  are  lost,  stolen  or  wholly  worn  out  on 
the  work,  and  the  depreciation  and  mainten- 
ance of  tools  and  appliances  which  are  par- 
tially worn  out  on  the  work. 

11.  Incidental  Material. 

This  should  include  the  cost  of  any  and  all 
material  bought  especially  for  the  work,  used 
and  consumed  in  the  process  of  construction. 

12.  Breakage,  Loss  and  Waste. 

13.  Construction  Superintendence. 

By  Construction  Superintendence  is  meant 
such  expense  as  is  incurred  in  the  securing 
of  permits  and  consents,  making  preliminary 
surveys  of  the  work,  preparing  cost  estimates, 
construction  engineering,  superintendence, 

[27] 


material  and  labor  accounting,  issuing  work 
orders,  inspection,  and  all  other  related  ex- 
pense. 

14.  Employers'  Liability  Insurance. 

15.  Public  Liability  Insurance. 

The  foregoing  schedule  contemplates  that  the 
work  will  be  done  by  the  utility's  own  organiza- 
tion. Where  any  work  is  in  practice  done  by  a  con- 
tractor, all  items  of  expense  included  in  the  con- 
tractor's price  should  be  substituted  in  place  of  sim- 
ilar items  covered  in  the  above  schedule  of  unit  costs. 

OVERHEAD  COSTS. 

There  are  certain  general  costs,  in  addition  to 
the  direct  or  unit  costs,  which  every  company  must 
incur  in  the  reproduction  of  its  property,  in- 
cluding its  plant  and  business,  and  for  which 
it  must  make  actual  money  expenditures.  These 
are  commonly  termed  "Overhead  Costs,"  and 
are  of  such  a  character  that  they  cannot  be  con- 
veniently apportioned  to  the  units  of  the  property. 
The  costs  which  should  be  allocated  to  the  units  have 
been  outlined  under  "Unit  Costs,"  and  the  overhead 
expenses,  which  should  be  treated  as  a  gross  sum  or 
apportioned  to  large  groups  of  units,  are  described 
below.  However,  no  hard  and  fast  line  of  distinction 
can  be  drawn,  and  each  utility  must  use  care  in  the 
manner  in  which  these  items  are  treated  to  avoid  du- 
plicating in  the  gross  overheads  any  items  which 
have  been  allocated  to  the  units.  Apportionments 
among  the  groups  of  units  may  be  advisable  where 
one  or  more  of  the  overheads  apply  in  varying  per- 
centages to  the  various  groups  of  units ;  but  in  such 
case  care  must  be  taken  that  the  apportionments  are 
made  correctly. 

Experience  in  making  appraisals  indicates  that 
the  following  costs  should  be  treated  as  overheads: 

1.  Legal. 

2.  Administration  and  Supervision. 

[28] 


3.  Engineering. 

4.  Insurance  during  Reproduction. 

5.  Taxes  during  Reproduction. 

6.  Interest  during  Reproduction. 

7.  Contingencies. 

8.  Omissions  and  Oversights. 

1.  Legal. 

This  should  include  the  cost  of  all  fees  and  ex- 
penses paid  to  lawyers,  attorneys,  or  counsel  for 
services  or  advice  required  of  them  during  the  repro- 
duction period  of  the  property,  that  have  not  been 
included  specifically  in  any  other  item.  Such  serv- 
ices would  be  the  following : 

Preparation  of  franchises,  contracts,  rights-of- 
way  agreements,  and  all  other  documents  of  what- 
ever nature  required  by  the  company  in  the  acquisi- 
tion of  its  property  and  rights. 

The  adjustment  of  claims  for  damages  and  in- 
juries to  persons  and  property. 

Attention  to  injunction  and  other  cases. 

General  advice  from  day  to  day. 

Services  in  connection  with  corporate  meetings. 

Services  in  negotiations  for  franchises. 

All  other  legal  services. 

2.  Administration  and  Supervision. 

This  should  include  the  salaries  and  expenses  of 
all  executive  and  other  officers  which  are  general  to 
the  property,  and  related  general  expense,  such  as 
the  salaries  and  expenses  of  assistants  and  clerks, 
general  office  rent,  and  similar  expenses  necessary 
in  the  reproduction  of  the  property,  including  both 
plant  and  business,  not  already  included  under  Unit 
Costs  or  Cost  of  Reproducing  the  Business. 

3.  Engineering. 

This  should  include  expenditures  for  engineer- 
ing, either  the  fees  paid  designing  and  consulting 

[29] 


engineers,  or  the  salaries,  housing  and  expense  of 
the  engineering  force  required  in  preparation  of  spe- 
cifications and  preliminary  and  working  plans  for  all 
construction  work;  making  of  cost  estimates  and 
reports,  and  the  investigation  and  determination  of 
proper  construction  practices;  checking  of  con- 
tractors' plans,  specifications  and  bids;  checking  of 
work  for  payments  on  estimates;  testing  or  in- 
spection for  acceptance;  and  advising  on  work  in 
progress  until  completed. 

The  above  does  not  include  the  construction  en- 
gineering work  done  and  allocated  to  the  Unit  Costs 
under  Construction  Superintendence,  Item  13  of  Unit 
Costs ;  or  the  engineering  during  preliminary  investi- 
gations; or  commercial  engineering,  which  is  in- 
cluded under  the  Cost  of  Reproducing  the  Business. 

4.  Insurance   During  Reproduction. 

This  should  include  all  costs  of  fire,  casualty  and 
any  other  insurance  during  the  period  required  to 
reproduce  the  property,  including  plant  and  bus- 
iness, except  such  as  are  included  in  the  Unit  Costs. 

5.  Taxes     During     Reproduction. 

As  a  part  of  the  reproductive  cost  of  its  property 
a  utility  should  include  the  cost  of  all  taxes  and  as- 
sessments on  property  during  the  reproduction 
period,  except  assessments  for  street,  sewer  and 
other  improvements  which  are  included  as  a  part  of 
the  cost  of  the  land. 

6.  Interest    During    Reproduction. 

As  it  is  inevitable  that  the  capital  invested  in  the 
reproduction  of  the  property,  including  plant  and 
business,  must  remain  unproductive  until  the  plant 
passes  into  service,  interest  on  this  capital  is  one  of 
the  necessary  costs  of  reproduction.  Interest  should 
be  computed  on  the  amounts  entering  into  the  cost 
of  the  property  from  the  time  these  funds  are  re- 
quired until  the  plant  is  placed  in  service. 

[30] 


7.  Contingencies. 

In  spite  of  due  supervision,  careful  planning  and 
competent  management,  all  difficulties  and  problems 
actually  encountered  in  the  performance  of  work  can 
not  be  entirely  foretold  and  their  cost  accurately  esti- 
mated in  advance.  The  character  of  these  contingen- 
cies is  so  varied  that  it  is  not  possible  to  anticipate 
in  what  form  they  will  arise.  Among  others  there 
are  storms,  floods,  protracted  bad  weather,  fires,  ex- 
plosions, strikes,  riots  and  civil  disturbances.  In 
general  practice  it  is  customary  to  add  to  all  esti- 
mates some  per  cent,  allowance  under  each  class  of 
property  to  cover  these  contingencies.  This  should 
be  done  in  an  estimate  of  the  cost  of  reproduction  of 
the  property. 

8.  Omissions  and  Oversights. 

It  is  the  experience  of  all  appraisers  that  al- 
though reasonable  care  and  thoroughness  are  exer- 
cised, it  is  not  practicable  to  make  an  inventory  and 
appraisal  of  a  property  without  unconsciously  omit- 
ting things  which  actually  represent  expenditures. 
Therefore  a  reasonable  allowance  should  be  included 
under  this  heading  to  compensate  for  items  of  prop- 
erty omitted  from  the  inventory.  Generally  such  al- 
lowance is  covered  by  a  percentage  to  be  added  to 
each  class  of  property. 

APPORTIONMENTS. 

Where  two  or  more  utilities  are  operated  by  a 
single  company,  and  portions  of  the  plant,  transmis- 
sion lines,  distribution  systems,  or  other  equipment 
or  property  are  used  in  common  by  some  or  all  of 
these  jointly  operated  utilities,  the  value  of  such 
jointly  used  property  should  be  apportioned  among 
the  various  utilities  in  proportion  to  the  service  re- 
quirements made  by  each  utility  upon  such  property. 

Where  a  single  company  operates  two  or  more 
utilities,  and  maintains  a  stock  of  supplies  for  the 

[31] 


benefit  of  some  or  all  of  these  utilities,  the  value  of 
this  stock  of  supplies  should  be  apportioned  among 
the  utilities  in  proportion  to  the  service  require- 
ments made  upon  the  total  supply  by  each  of  the 
various  utilities. 

Where  utilities  are  operating  in  more  than  one 
political  subdivision,  apportionments  should  be  made 
in  proportion  to  the  service  requirements  of  each 
subdivision  or  rate  area. 

APPORTIONMENT   OF    REPRODUCTIVE    COST 
OF  JOINTLY  USED  POLES. 

Joint  Ownership. 

Where  a  pole  is  jointly  owned  by  A  and  B,  the 
reproductive  cost  of  the  pole  should  be  apportioned 
between  A  and  B  on  the  basis  of  their  respective 
rights  in  the  pole. 

Joint  Occupancy. 

(a)  Permanent   Right. 

Where  a  permanent  right  of  occupancy  on  the 
pole  has  been  granted  by  A  to  B,  the  reproductive 
cost  of  the  pole  should  be  apportioned  between  A  and 
B  as  though  it  were  jointly  owned. 

(b)  Terminable  Right. 

Where  a  pole  is  owned  by  A,  and  B  has  a  right 
of  occupancy  on  the  pole,  terminable  at  the  will  of 
A,  whether  on  a  rental  basis  or  otherwise,  and  has 
certain  attachments  fastened  to  said  pole,  the  repro- 
ductive cost  of  A's  property  should  include  the  en- 
tire reproductive  cost  of  the  pole  and  A's  attach- 
ments; and  the  reproductive  cost  of  B's  property 
should  include  the  reproductive  cost  of  B's  attach- 
ments, and  also  the  reproductive  cost  to  B  of  secur- 
ing the  permits,  contracts  and  rights-of-way,  and  all 
other  costs  involved  in  reproducing  B's  rights  and 
physical  property. 

[32] 


COST  OF  REPRODUCING  THE   BUSINESS. 

The  reproduction  cost  of  a  property  embraces 
not  only  the  physical  property,  but  also  all  attributes 
of  the  property,  including  its  developed  earning 
power. 

The  cost  of  reproducing  the  business  should 
therefore  be  treated  as  an  element  in  the  value  of  the 
property.  It  cannot  be  separated  from  the 
physical  property;  for  example,  if  the  plant  is  sold, 
the  sale  of  the  property  carries  with  it  the  patronage 
and  the  power  to  earn. 

The  cost  of  reproducing  the  business  should  not 
go  into  the  unit  costs  because  it  is  not  a  part  of  the 
units  which  these  costs  cover.  Moreover,  there  is 
no  depreciation  of  this  item  to  be  taken  into  account. 

Hence  the  Cost  of  Reproducing  the  Business 
should  include  all  the  necessary  costs  of  attaching 
the  business  and  reproducing  the  income  of  the  util- 
ity as  of  July  1st,  1914. 

Some  of  the  elements  of  expense  which  enter  into 
the  Cost  of  Reproducing  the  Business  are  as  fol- 
lows : 

1.  The  cost  of  organizing  and  training  the  op- 
erating force,   and  all  employes  whose  work  re- 
quires slcill  peculiar  to  the  business  of  the  utility, 
such  as  exchange  operators,  motormen,  conductors, 
dispatchers,  roadmen,  signal  operators,  meter  read- 
ers, installers,  linemen,  troublemen,  and  repairmen. 

2.  The  cost  of  organizing  the  clerical  force. 

3.  The  cost  of  organizing  and  training  the  sell- 
ing force. 

4.  The  cost  of  securing  customers,  including  ex- 
penses of  solicitors,  advertising,  printing,  free  wir- 
ing or  other  inducements. 

5.  The   cost  of   commercial  engineering. 

6.  The  cost  of  printing  all  forms,  records,  books, 
schedules  and  directories. 

[33] 


7.  The  rent  of  commercial  offices   (where  not 
owned) . 

8.  Any  other  cost,  not  included  above,  neces- 
sary to  the  development  of  the  business  found  to  ex- 
ist on  the  date  of  the  inventory. 

DEPRECIATION. 

Order  No.  176  requires  that  the  appraisal  shall 
show  the  depreciation,  if  any,  from  the  new  repro- 
ductive cost  as  of  July  1st,  1914,  of  the  physical  prop- 
erty of  the  utility. 

The  term  "depreciation"  has  been  variously  de- 
fined by  different  writers,  depending  upon  the  point 
from  which  they  view  the  question,  but  it  is  be- 
lieved that  as  used  in  Order  No.  176,  depreciation 
may  properly  be  defined  as  the  reduction  in  value 
caused  by  physical  deterioration  and  any  present 
obsolescence  or  lack  of  utility,  if  such  exists. 

CONSIDERATION    OF    DIFFERENT    METHODS 
FOR  DETERMINING  DEPRECIATION. 

Several  methods  have  been  used  by  appraisers  in 
determining  depreciation.  These  methods  are : 

1.  Theoretical  Methods. 

(a)  The  Straight  Line  Method. 

(b)  The  Sinking  Fund  Method. 

2.  The  Actual  Inspection  Method. 

THEORETICAL    METHODS. 

Straight  Line  Method. 

The  Straight  Line  Method  of  estimating  depre- 
ciation is  based  upon  the  assumption  that  the  wear- 
ing value  of  a  piece  of  apparatus  decreases  uniformly 
from  year  to  year.  Hence  the  method  employed  is 
to  determine  as  nearly  as  may  be  the  life  of  the 
unit,  divide  100  by  the  life  in  years  to  arrive  at  the 

[34] 


annual  percentage  of  depreciation,  and  multiply  this 
annual  percentage  by  the  number  of  years  the  unit 
has  been  actually  in  use.  The  product  is  taken  as 
the  percentage  of  accrued  depreciation  of  the  unit. 

Sinking  Fund  Method. 

The  Sinking  Fund  Method  assumes  that  an 
amount  is  set  aside  each  year,  which,  invested  at 
compound  interest,  will  equal  the  total  wearing  value 
at  the  end  of  the  assumed  life.  This  differs  from 
the  Straight  Line  Method  only  in  that  the  amount 
assumed  to  be  set  aside  annually  as  an  addition  to 
the  hypothetical  reserve  fund  is  smaller,  due  to  the 
compounding  of  the  interest.  The  depreciation  at 
any  time  is  said  by  the  advocates  of  this  method  to 
exactly  equal  the  amount  that  is  or  should  be  in  the 
sinking  fund  accumulated  in  this  way. 

Objections  to  Straight  Line  and  Sinking  Fund 
Methods. 

Both  of  these  methods  make  use  of  life  tables 
showing  average  length  of  life  of  similar  units.  Often 
these  tables  do  not  represent  exhaustive  studies  of 
any  great  number  of  units.  Furthermore,  unless  the 
life  tables  are  compiled  with  reference  to  conditions 
similar  to  those  surrounding  the  operation  of  the 
unit  in  question,  they  are  practically  worthless  as  a 
basis  for  estimating  the  length  of  life  of  a  unit.  Fre- 
quently such  tables  are  averages  taken  from  records 
of  units  operating  under  widely  diverse  conditions; 
hence  give  no  index  to  the  depreciation  of  a  unit 
working  under  definite  circumstances.  More- 
over, these  tables  are  based  upon  studies  of  units 
installed  many  years  ago,  and  operated  under  condi- 
tions prevailing  during  that  period,  which  are  nec- 
essarily different  from  conditions  under  which 
similar  units  are  operated  today,  or  will  be  operated 
in  the  future. 

[35] 


Moreover,  such  life  tables  are  open  to  objection, 
because  they  necessarily  fail  to  accurately  measure : 

1.  The  wear  and  tear  which  has  actually  taken 
place  on  the  unit  in  question. 

Two  machines  of  the  same  make  and  age 
in  similar  plants  may  have  been  called  upon  to 
perform  widely  different  degrees  of  service, 
resulting  in  widely  different  amounts  of  wear 
and  tear. 

2.  The  standard  of  maintenance  employed. 

Widely  varying  standards  of  maintenance 
will  be  adopted  in  different  plants,  and  it  is 
impossible  to  give  proper  consideration  to 
these  variations  in  the  preparation  of  life 
tables. 

3.  The  element  of  inadequacy. 

Since  a  life  table  is  an  average  and  is  not 
made  with  reference  to  any  given  community, 
it  can  furnish  no  guide  to  any  influence  which 
the  element  of  inadequacy  from  natural 
causes  or  from  municipal  regulation  may  have 
upon  the  date  of  replacement  of  the  unit. 

4.  The  element  of  obsolescence. 

Any  effect  which  this  element  may  have 
upon  the  total  depreciation  is  much  more 
nearly  ascertainable  by  the  appraiser  at  the 
time  of  making  the  valuation  in  the  light  of 
the  state  of  the  art  at  that  particular  time 
than  by  the  use  of  any  life  tables. 

THE  ACTUAL  INSPECTION  METHOD. 

The  objections  which  have  been  urged  against 
estimating  depreciation  by  any  of  the  theoretical 
methods  are  met  by  the  use  of  the  actual  inspection 
method.  Here  the  depreciation  is  determined 
through  actual  inspection  by  an  appraiser,  and  the 
application  of  his  judgment,  verified  by  such  tests 
as  may  be  practicable.  By  the  inspection  method, 
due  allowance  is  made  for  the  actual  wear  and  tear 
and  the  standard  of  maintenance  employed.  It  is  the 

[36] 


consensus  of  opinion  that  this  method  affords  the 
fairest  measure  of  depreciation  that  can  be  applied 
to  a  property. 

Moreover,  the  statute  upon  which  Order  No.  176 
is  based  seems  to  prescribe  the  actual  inspection 
method.  Section  499-9,  Sub-division  E,  of  the 
General  Code,  specifically  requires  that  depreciation 
should  be  determined  from  "existing"  conditions, 
using  the  following  language: 

"E.  Depreciation,  if  any,  from  the  new 
reproductive  cost  as  of  a  date  certain  for  ex- 
isting mechanical  deterioration,  for  age,  for 
obsolescence,  for  lack  of  utility,  or  for  any 
other  cause,  the  percentage  and  amount  of 
each  class  of  depreciation,  if  any,  to  be  speci- 
fically set  forth  in  detail." 

The  law  therefore  requires  a  determination  of 
actual  existing,  as  distinguished  from  theoretical, 
depreciation.  As  no  actual  condition  can  be  ascer- 
tained without  inspection  and  observation  it  seems 
clear  that  the  statute  requires  the  adoption  of  the 
inspection  method. 

In  the  use  of  this  method,  it  is  essential  that 
the  appraiser  must  actually  inspect  not  only  the  unit 
as  a  whole,  but  the  component  parts  of  the  unit. 
From  his  knowledge  and  experience  he  must  deter- 
mine the  physical  condition  of  the  property  or  unit 
with  reference  to  the  same  property  or  unit  new. 
In  making  this  determination,  the  age  or  length  of 
time  that  such  unit  has  been  in  service  is  imma- 
terial. 

For  example,  two  similar  units  may  have  been  in- 
stalled in  different  plants  at  the  same  time :  the  first 
maintained  in  the  best  possible  condition,  or  sub- 
jected to  light  service ;  the  second,  neglected  or  care- 
lessly maintained,  or  heavily  overloaded.  As  a  re- 
sult, the  second  unit  would  be  found  in  much  lower 
physical  condition  than  the  first.  The  respective 
conditions  of  these  units  could  be  arrived  at  only 
by  inspection. 

[37] 


A  further  illustration  of  the  advantage  and  im- 
portance of  the  inspection  method  in  accurately  esti- 
mating depreciation,  is  found  in  the  case  of  water 
and  gas  pipes,  and  underground  conduits  and  cables. 
Upon  examination,  it  may  be  found  that  in  one  com- 
munity or  district,  irrespective  of  age,  the  physical 
condition  of  the  property  may  be  approximately  100 
per  cent.,  while  in  another  community  or  district, 
due  to  peculiar  local  conditions,  there  may  be  found 
a  considerable  wasting  away  of  materials.  The  ad- 
vantage of  the  inspection  method  over  any  theoret- 
ical method  for  accurately  appraising  the  present 
condition  of  property  is  in  this  case  manifest. 

The  following  suggestions  are  offered  as  an  aid 
in  arriving  at  the  exact  amount  or  percentage  to  be 
allowed  for  depreciation  by  the  use  of  the  inspection 
method : 

Where  a  unit  has  deterioriated,  but  is  capable  of 
being  restored  to  approximately  100%  condition, 
through  repairs  or  the  replacement  of  parts,  the 
amount  of  depreciation  will  be  measured  by  the  cost 
of  the  repairs  necessary  to  restore  the  unit,  plus  an 
allowance  for  any  other  existing  depreciation  which 
cannot  be  made  good  by  repairs. 

For  example,  a  pole  which  shows  rot  at  the 
ground  line  may  be  reinforced  at  that  point  with 
concrete,  and  the  weakness  thereby  eliminated.  The 
cost  of  making  these  repairs,  together  with  an  al- 
lowance for  any  depreciation  found  to  exist  in  the 
upper  part  of  the  pole,  would  be  the  measure  of  the 
depreciation. 

The  cost  of  restoration  is  a  measure  which 
will  be  readily  applied  by  the  average  operator,  who 
is  familiar  with  the  expense  of  repairing  units.  Or 
the  cost  of  such  repairs  may  be  easily  ascertained 
from  the  records  of  the  company,  or  from  estimates 
of  competent  parties. 

In  some  instances  it  may  be  found  impracticable 
to  apply  this  measure,  due  to  the  fact  that  some 

[38] 


units  do  not  lend  themselves  readily  to  repair.  In 
such  cases,  the  appraiser  must,  in  the  exercise  of 
sound  judgment,  determine  the  amount  of  wear 
and  tear  that  has  accrued,  and  with  reference  to  the 
remaining  service  or  wearing  value,  assign  a  just 
amount  of  depreciation  to  the  unit  in  question. 

The  value  of  almost  every  unit  or  piece  of  prop- 
erty may  be  divided  into  two  parts:  (a)  wearing 
value,  and  (b)  scrap,  salvage  or  other  remaining 
value,  such  as  re-use  value. 

The  scrap  or  salvage  value  of  a  unit  is  its  value 
or  its  fair  market  price  as  old  material,  after  deduct- 
ing the  cost  of  removal.  The  difference  between  the 
cost  of  the  unit  and  its  salvage  value  is  the  wearing 
value.  Since  the  salvage  value  as  of  a  date  certain 
is  fixed,  and  therefore  not  subject  to  depreciation, 
the  only  part  of  the  value  of  the  unit  which  may  be 
depreciated  is  the  wearing  value. 

In  the  case  of  certain  units  the  scrap  or  salvage 
value  might  be  zero,  i.e.,  the  cost  of  removal  might 
equal  or  even  exceed  the  fair  market  price  of  the  old 
material.  In  such  an  instance  the  wearing  value  and 
the  reproductive  cost  new  would  be  equal,  and  the 
entire  reproductive  cost  would  therefore  be  subject 
to  depreciation. 

An  example  of  a  unit  which  has  salvage  value  is 
insulated  copper  wire.  The  value  of  the  copper  itself 
is  the  salvage;  and  the  wearing  value,  which  alone 
is  subject  to  depreciation,  is  the  difference  between 
the  salvage  value  and  the  cost  new  of  the  wire  in 
place. 

Where  a  unit  has  a  value  to  the  utility  for  re- 
use at  some  point  in  its  plant,  this  re-use  value 
should  be  taken  in  preference  to  the  salvage  value 
as  the  point  below  which  depreciation  of  the  unit 
does  not  go.  To  illustrate :  A  railroad  company  may 
use  an  80  lb.  rail  in  its  main  line  until  it  is  so  worn 
that  it  is  no  longer  useful  in  that  place.  But 
while  not  safe  for  use  in  the  main  line  its  value  for 

[89] 


use  in  a  branch  line  or  on  a  siding  may  be  equal  to 
75%  of  its  reproduction  cost. 

Another  illustration  is  found  in  the  case  of  a  pole 
of,  say  60  feet,  which  has  been  in  service  and  has 
become  decayed  at  the  ground  line  and  therefore  un- 
safe. The  pole  may  be  removed,  shortened,  and  reset 
as  a  50  foot  pole.  As  reset,  it  may  have  a  value  of 
from  40%  to  60%  of  its  reproduction  cost  new. 

DEPRECIATION  RESERVE. 

In  order  that  any  reserves  which  any  utility  may 
have  set  up  in  the  past  or  may  set  up  in  the  future 
may  not  be  confused  with  the  actual  depreciation 
of  the  property,  it  is  thought  best  that  the  Com- 
mittee express  itself  clearly  on  this  point. 

Depreciation  and  Depreciation  Reserve  are  two 
distinct  and  independent  things. 

Depreciation  has  been  defined  in  the  foregoing 
pages. 

Depreciation  Reserve  is  a  fund  set  aside  in  an- 
ticipation of  the  occurrence  of  depreciation  or  loss  or 
destruction  of  any  part  of  the  serviceable  plant  from 
any  cause  whatsoever.  It  is  in  the  nature  of  an  in- 
surance fund  to  guarantee  the  continuation  of  the 
life  of  the  property  and  keep  it  in  a  condition  to  ren- 
der satisfactory  service.  It  is  from  this  depreciation 
reserve  fund  that  provision  must  be  made  to  cover 
replacements  made  necessary  not  only  by  mechanical 
deterioration,  but  also  by  storms,  floods,  municipal 
requirements,  obsolescence,  changes  in  the  art  and 
all  other  kinds  of  contingencies  which  in  the  nature 
of  things  cannot  be  foreseen. 

It  is  important  to  note  that  neither  the  amount 
in  the  depreciation  fund  nor  the  amount  which  ought 
to  be  in  such  fund  is  in  any  way  a  measure  of  the 
depreciation  or  loss  of  value  which  has  already  taken 
place,  nor  does  it  afford  a  measure  of  the  rate  at 
which  depreciation  or  loss  of  serviceability  will  oc- 
cur in  the  future. 

[40] 


DEPRECIATION    OF    PRELIMINARY    AND 
OVERHEAD   COSTS. 

As  used  in  this  discussion  overhead  costs  will  not 
include  construction  engineering,  construction  sup- 
erintendence, and  similar  expenses  which  should  be 
allocated  to  the  units  as  stated  in  paragraph  13,  Unit 
Costs,  page  27.  While  there  may  be  some  excep- 
tions, as  a  general  rule  construction  engineering  and 
superintendence  depreciate  with  the  depreciable  part 
of  the  units  to  which  they  are  allocated.  But  there 
is  no  direct  connection  or  relation  between  the  de- 
preciation of  any  physical  units  of  property  and  the 
preliminary  and  overhead  costs  which  appertain  to 
the  property  as  a  going  business.  For  instance,  if 
some  poles,  sections  of  rail,  cable  or  conduit  depre- 
ciate so  that  they  must  be  replaced,  it  does  not  fol- 
low that  the  values  resulting  from  general  engineer- 
ing, legal,  financing,  organization,  and  other  such 
costs  have  deteriorated  to  the  same  extent.  On  the 
contrary,  the  per  cent,  condition  of  such  values  may 
have  remained  constant,  while  the  per  cent,  condi- 
tion of  certain  physical  units  may  have  decreased. 

The  real  test  as  to  whether  there  is  or  can  be 
any  depreciation  of  such  values  will  depend  upon 
whether  in  the  replacement  of  any  unit  the  overhead 
costs  must  be  reincurred.  Subjecting  the  overhead 
and  preliminary  costs  to  this  test,  it  is  found  that 
the  costs  of  preliminary  investigation,  organization, 
financing,  franchise,  legal,  administration,  general 
engineering,  interest,  insurance  and  taxes  during 
reproduction  do  not,  upon  the  replacement  of  any 
unit,  need  to  be  reincurred  to  any  appreciable  ex- 
tent. 

Therefore,  it  is  the  opinion  of  the  Committee 
that  the  depreciation  in  these  values,  if  any  exists  at 
a  given  time,  is  so  small  that  it  is  impracticable  to 
compute  it,  and  that  the  utilities  are  justified  in  ig- 
noring it  in  making  up  their  inventories. 

[41] 


The  depreciation  of  contingencies  and  omissions 
may  be  estimated  to  be  the  same  as  the  average  for 
the  entire  physical  property. 

CONCLUSION. 

In  conclusion,  the  Committee  begs  to  call  the  at- 
tention of  the  various  utilities  to  the  fact  that  "Re- 
productive Cost  New  Less  Depreciation,"  as  called 
for  in  Order  No.  176,  is  not  the  only  evidence  of  the 
value  of  a  utility;  and  therefore,  in  order  that  no 
claim  of  estoppel  may  be  set  up  in  any  proceedings 
involving  the  value  of  the  property,  the  following 
clause  should  be  inserted  on  the  last  sheet  of  the  in- 
ventory above  the  signature : 

This  inventory  and  appraisal  has  been 
made  in  an  effort  to  comply  in  all  respects 
with  the  Commission's  Order  No.  176,  by  list- 
ing the  items  of  property  owned  by  this  com- 
pany and  stating  their  reproductive  cost  new 
less  depreciation.  The  company  reserves  the 
right,  in  any  appropriate  proceedings  involv- 
ing the  value  of  said  property  or  any  part 
thereof,  to  offer  any  other  or  additional 
evidence  of  value. 


[42] 


Gaylord  Bros. 

Makers 

Syracuse,  N.  Y 
PAT.  JAN.  21,  1908 


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